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On July 30, 2015, the Ninth Circuit issued one of the most significant appellate opinions regarding standard essential patents (SEPs) subject to commitments to license on fair, reasonable and non-discriminatory (FRAND, or simply RAND) terms. In Microsoft Corp. v. Motorola, Inc. (Case No. 14-35393), the Court upheld determinations by U.S. District Court Judge James Robart (W.D. Wash.) as to (i) when a member of a Standard Setting Organization (SSO) is obligated to license that member’s SEP on FRAND terms, (ii) what the proper methodology is for calculating a FRAND royalty rate, and (iii) what remedies are available for breach of an obligation to license a SEP on FRAND terms. The affirmance represents a major victory for Microsoft and other SEP licensees, and provides significant guidance regarding future FRAND disputes.

On June 22, 2015, in a 6-3 decision in Kimble et al. v. Marvel Enterprises, LLC, 576 U.S. (2015), the United States Supreme Court reaffirmed its holding in Brulotte v. Thys, 379 U.S. 29 (1964), that it is per se patent misuse for a patentee to charge royalties for the use of its patent after the patent expires. While acknowledging the weak economic underpinnings of Brulotte, the Court relied heavily on stare decisis and Congressional inaction to overrule Brulotte in also declining to do so itself. Although Kimble leaves Brulotte intact, the decision restates the rule of that case and provides practical guidance to avoid its prohibition on post-expiration royalties. Critically, the Court appears to condone the collection of a full royalty for a portfolio of licenses until the last patent in the portfolio expires. In addition, the Court’s reasoning provides guidance as to how patent licensors can draft licenses to isolate the effect of a later finding that patents conveyed under those licenses were previously exhausted.

On June 17, 2015, the U.S. District Court for the Eastern District of Pennsylvania approved a consent order (the “Consent Order”) between the Federal Trade Commission and defendants Cephalon, Inc. and its parent, Teva Pharmaceutical Industries Ltd.,[1] resolved long-running antitrust litigation stemming from four “reverse payment” settlements of Hatch-Waxman patent infringement cases involving the branded drug Provigil®. Pursuant to its settlement with the FTC (the “Consent Order”), Cephalon agreed to disgorge $1.2 billion and to limit the terms of any future settlements of Hatch-Waxman cases.[2] The FTC and its Staff have celebrated and promoted the terms of the settlement as setting a new standard for resolving reverse-payment cases. But their enthusiasm may be more wishful thinking than reality, and their speculation that the agreement may exert force on market behavior does not appear to be supported by a fair assessment of the state of the law. First, the restrictions on Cephalon’s ability to enter into settlements of Hatch-Waxman cases exceed anything a court has ever required, and conflict with settlement terms apparently approved in the U.S. Supreme Court’s seminal reverse-payment decision, Federal Trade Commission v. Actavis, 133 S. Ct. 2223 (2013). Second, the FTC’s use of disgorgement as a remedy remains controversial and Cephalon, despite initial opposition, might have voluntarily embraced that remedy as part of a strategy to achieve a global resolution of remaining private litigation. We write to put the Consent Order in perspective, so that industry participants can better assess its meaning.

In late May, the U.S. Court of Appeals for the Second Circuit issued the first appellate decision addressing the pharmaceutical industry practice called by some “product hopping”—a two-step process in which a drug approaching the end of its patent term is withdrawn or made less desirable to customers so that patients will switch to a successor product with more exclusivity remaining. In this way, drug manufacturers may seek to protect sales from generic competition. “Product hopping” cases are often analyzed under the antitrust rules developed to assess claims of “predatory innovation” or related conduct, as exemplified by well-known cases involving Microsoft and Kodak. In this article, just published in Law360, lawyers from Orrick’s Intellectual Property and Antitrust groups weigh in on the Second Circuit’s decision, focusing on aspects of the analysis that may not be applicable in different cases and contexts.

Last week, in In re Cipro Cases I & II, Case No. S198616, the Supreme Court of California adopted the United States Supreme Court’s application of the Rule of Reason to the antitrust analysis of so-called “reverse payment” patent settlements (and rejected plaintiffs’ arguments that settlement payments exceeding the costs of litigation or other services are per se unlawful), but also set forth a specific “structured” Rule of Reason analysis to be applied in analyzing such settlements. A copy of the decision can be found here.

On Feb. 25, 2015, the U.S. Supreme Court held, in a 6-3 decision, that a state board with a controlling number of decision-makers, who are active market participants in the occupation the board regulates, does not enjoy state action immunity from federal antitrust laws unless “the State has articulated a clear policy to allow the anticompetitive conduct, and, the State provides active supervision of [the] anticompetitive conduct.” N.C. State Bd. of Dental Exam’rs v. F.T.C., 135 S. Ct. 1101, 1112 (2015). (Click here for a copy of the opinion.)

In Oneok, Inc. v. Learjet, Inc., Case No. 13-271 (Apr. 21, 2015), the U.S. Supreme Court held that the Natural Gas Act did not preempt retail customers’ state law antitrust claims against interstate gas pipeline operators for price manipulation. A copy of the decision is available here.

On Apr. 15, 2015, the 11th Circuit affirmed a Federal Trade Commission ruling that McWane, Inc., the dominant producer of domestic pipe fittings, violated Section 5 of the FTC Act when it informed its distributors that unless they bought all of their domestic fittings from McWane, they would lose rebates and be cut off from purchases for 12 weeks. McWane, Inc. v. FTC, No. 14-11363 (11th Cir. Apr. 15, 2015).

The U.S. Court of Appeals for the 9th Circuit issued a landmark ruling on February 20, 2015, affirming a district court’s order blocking a merger between the St. Luke’s Health System (“St. Luke’s”) and the Saltzer Medical Group (“Saltzer”)—the largest independent multi-specialty physician group, including adult primary care, in Nampa, Idaho. See generallySt. Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775 (9th Cir. 2015). Of note, the 9th Circuit rejected using quality care improvements standing alone to defend a merger, reaffirmed the use of the Herfindahl-Hirschman Index (“HHI”) when assessing health care market concentration, and established a challenging standard for defending future clinical provider ventures.

On Mar. 17, 2015, the U.S. Supreme Court was provided an opportunity to review two decisions involving different applications of the Foreign Trade Antitrust Improvements Act (“FTAIA”) to Sherman Act claims based on a price-fixing conspiracy involving TFT-LCD panels. In a petition for certiorari filed that day, Motorola Mobility urged the U.S. Supreme Court to review a 7th Circuit ruling that the FTAIA blocked the majority of Motorola’s civil price-fixing claims against multiple manufacturers of TFT-LCD panels. At the same time, AU Optronics (a manufacturer of TFT-LCD panels) and two of its executives filed a certiorari petition requesting review of a 9th Circuit ruling that arguably diverged from the 7th Circuit opinion, holding that the FTAIA did not bar criminal antitrust claims against them. The Supreme Court now has an opportunity to clarify the meaning of the FTAIA and to resolve the arguably inconsistent circuit interpretations.

On Feb. 27, 2015, in In re Online DVD-Rental Antitrust Litig., 779 F.3d 914 (9th Cir. 2015), the U.S. Court of Appeals for the 9th Circuit affirmed a summary judgment for Netflix in an action alleging that Netflix conspired with Walmart to monopolize the online DVD rental market. The court found that the class of consumer plaintiffs had failed to establish antitrust injury.

On Apr. 8, 2015, the U.S. Court of Appeals for the 3d Circuit vacated a district court order that had certified a class of direct purchasers of traditional blood reagents who asserted price-fixing claims under Section 1 of the Sherman Act. In re: Blood Reagents Antitrust Litig., No. 12-4067, 2015 WL 1543101 at *1 (3d Cir. Apr. 8, 2015).

On Mar. 3, 2015, U.S. District Judge Lucy Koh granted preliminary approval to a proposed $415 million settlement of a class action concerning alleged anti-solicitation agreements among certain Silicon Valley high-tech companies. In re High-Tech Emps. Antitrust Litig., No. 5:11-cv-2509-LHK (N.D. Cal. Mar. 3, 2015), Dkt. No. 1054. Orrick’s previous coverage of the case, in which Judge Koh declined to approve the original settlement totaling $324.5 million, is available here. Class members have until May 21, 2015, to opt out or object to the proposed settlement. Judge Koh will hold a final approval hearing on July 9, 2015.

On Feb. 2, 2015, the U.S. Department of Justice (DOJ) issued a business review letter that effectively approved a proposal by the Institute of Electrical and Electronic Engineers (IEEE) to update the IEEE Standard Association’s Patent Policy (Policy) regarding standard-essential patents (SEPs) (the Update). The DOJ’s approval of IEEE’s Update is an important step in the development of policies that standard-setting organizations can adopt with respect to SEPs while reducing the risk of an enforcement action by the DOJ. Read More

On Dec. 29, 2014, the U.S. Department of Commerce posted a fact sheet on the 25th U.S.-China Joint Commission on Commerce and Trade. Portions of the fact sheet—which was jointly issued by the U.S. and Chinese governments—address competition issues and intellectual property rights, following substantial criticism of what many considered to be uneven enforcement of China’s Anti-Monopoly Law (AML) against non-Chinese companies. We described the nature of that criticism in October 2014. The main complaint has been that China undertakes selective enforcement of the AML with the goal of promoting Chinese companies or industries, and does the same with enforcement proceedings relating to intellectual property rights. The fact sheet states the following with respect to competition: Read More

On Jan. 21, 2015, the U.S. Supreme Court issued a unanimous decision clarifying the appealability of a ruling in a case that has been consolidated for pretrial purposes with others in a multidistrict litigation (MDL) proceeding. Gelboim v. Bank of Am. Corp., 135 S.Ct. 8971174 (2015).

Plaintiff Ellen Gelboim filed a class action alleging that the defendant banks violated federal antitrust law by conspiring to fix a measure of interest rates. The case was consolidated with 60 others for pretrial purposes. Although some of the other cases also contained additional claims, Gelboim’s complaint raised only the single antitrust claim. The defendant banks moved to dismiss Gelboim’s complaint on the ground that the plaintiffs had suffered no antitrust injury. The district court granted the motion, dismissing Gelboim’s case in its entirety while those cases in the MDL presenting additional claims remained before the court. When Gelboim appealed, the 2nd U.S. Circuit Court of Appeals, acting on its own motion, dismissed the appeal for want of appellate jurisdiction. Because the MDL was ongoing, the court ruled, there was no “final decision of the district court” as required for appellate jurisdiction under 28 U.S.C. § 1291. Read More

The past year has seen somewhat conflicting decisions from 7th Circuit (Motorola Mobility) and 9th Circuit (Hsiung) regarding the scope and application of the U.S. Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a to preclude Sherman Act liability for conduct that takes place outside the United States. Specifically, the 7th and 9th Circuits have disagreed regarding the meaning of the statutory “domestic effects” test used to determine whether Sherman Act claims would be blocked by the FTAIA. However, in January 2015, both Circuits issued amended opinions in cases stemming from the TFT-LCD price-fixing case—after reviewing each other’s original opinion and a lot of commentary and criticism by outsiders—suggesting that they be moving closer in how their different formulations of the test apply to foreign anticompetitive conduct that has an effect in the United States. Read More

On Jan. 14, 2015, the 5th U.S. Circuit Court of Appeals reversed a district court’s order rejecting the American Quarter Horse Association’s (AQHA) motion for judgment as a matter of law after a jury found that it violated the Sherman Act by adopting new rules the block the registration of horses created through cloning. Abraham & Veneklasen Joint Venture v. Am. Quarter Horse Assoc., No. 13-11043, 2015 U.S. App. LEXIS 582 (5th Cir. Jan. 14, 2015). While the court assumed that the association could be liable for violating Section 1 under the U.S. Supreme Court’s joint venture decision in American Needle, Inc. v. NFL, 560 U.S. 183 (2010), it found that there was insufficient evidence to permit an inference of a conspiracy . The Court also rejected plaintiffs Section 2 claim that the association had monopolized an alleged market for “elite Quarter Horses.” Read More

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